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The Russian President Vladimir Putin has implemented a cunning plan in relation to Europe and their sanctions on Russia. I call it “Right back at ya – watch this!”

“Russia is finished! Sanctions from Obama and the European Union will finished the Russian economy and now it will become the poorest country in the world! Russia can not do anything to answer the West! We will all die”

So love to scream those who do not know about Putin’s cunning plan.

Europeans believed that Russia does not respond to sanctions; but Russia has. The EU will soon feel the pain as they now know that they will lose at least 12 billion euros by being Washington’s puppet.

Putin has decided to act on the principle “I will beat gently, but firmly.” The effects wont take long to be seen.

European politicians have expressed “surprise”, “confusion”, “misunderstanding” and the hope that we can somehow “get out of the logic of sanctions.”

For the European Union, Russia is a key market. The EU’s share in the Russian food imports was 42%, and for the EU, Russia was the largest consumer, after the United States.

It is significant that the European politicians console themselves in the fact that sanctions are only imposed for a year, but the Russian market can be lost forever. Therefore, the damage from the “sanctions” Putin has retaliated with will be long-term.

In addition to the direct economic effect, the Russian sanctions will create permanent political problems. It turns out that Putin has – as Russians say – generously laid out a whole constellation of buttons on the chair – and the European Union will soon think twice about imposing sanctions on Russia.

The fact is that now all the affected countries will require from the European Commission compensation for loss, and the European Commission has to then find an extra 12 billion euros a year – and it can’t.

Finland is asking already for money: Finland is worried it will slip into another economic crisis due to the fact that Russia introduced sanctions against it. The Finnish Prime Minister Alexander Stubb said, “There is the potential that it will be the economic crisis number two,” at a press conference yesterday. It’s funny that the Finnish politician immediately demanded compensation from the European Union: “It is absolutely clear. If sanctions hit Finland disproportionately, we will try to get help from our partners in the EU. he said”

With a flick of the wrist, Putin has turned a few EU countries into clones of Ukraine. They will now also lose money just for the fact that they hate Russia (or believe they should). For Ukraine, this disease has already ended badly, but Finland and other countries will be cured of it quickly.

The treatment with be with the favorite German medicine – budget austerity policy, better known as the “healing by starvation.”

Another headache for the EU is the need to somehow arrest the indirect consequences of Russian sanctions. For example, farmers are unable to repay part of the loans that they have secured via export contracts in Russia.

Some manufacturers will not be able to pay subcontractors, some will have to lay off workers – it’s creating problems; the solution of which requires money. And the most annoying is the fact that it is now or will need to accept the fact that the export potential of the EU is diminished. 10% or so is the food consumed in Russia from European exports. The EU will have to increase subsidies to European producers, so they have a chance in other markets.

The level of subsidies in the EU amounts to 30% already, and to increase it will be very expensive, and the WTO rules will not allow this. For some countries, even the increase in grants won’t help.

For example, the Minister of Agriculture of Poland has already admitted that to replace the Russian market will be extremely difficult. The Europeans do not even have options to respond in kind, because Russia does not export food to Europe.

Russia is a major exporter of grain, but does not sell it in the EU.

With the exception of certain premium goods like French wine, Italian ham and certain cheeses, all food exports from Europe are easily replaced by exports from other countries, or Russian production.

It turns out that for Russia, there is potential for growth of its own production, while for the EU losing money is guaranteed.

There is something to think about. Assessing the long-term problems that arise from the first Russian sanctions, EU bureaucrats are likely to come to the conclusion that it is much more profitable ignore Ukraine and forget about the situation there. It is very possible that such thoughts have already dawned on EU leaders.

Just a few hours after the administration of Russian sanctions, news feeds carried this message:

“We want to overcome the logic of sanctions, we want to sit down with the Russian to the table to jointly discuss further ways of development of Ukraine”, – said the spokesman of the European Commission in Germany, Austrian Richard Kuehnel, RIA “Novosti” with reference to Deutsche Welle.
Russia offered this at the beginning, but, apparently, the Europeans needed a demonstration of political will and proof that Russia can inflict pain, without even touching the gas valve.

They got the proof, and in a rather offensive manner.

One has to be very naive to believe that the Europeans would agree to suffer economic losses for Ukraine. As can be seen from the statement by Kuehnel, they can not even tolerate a couple of weeks in order to “save face” and at least pretend that they care about the problems of Ukrainians more than the problems of their own farmers.

It is possible that we will have to watch the show and it will become quite funny. Washington will put pressure on the European Union and demand the preservation and strengthening of the sanctions, or the European Union will require compensation from the United States.

Extra money, the Americans do not have now they are bombing Iraq again, and so they may be forced to run the printing presses (“quantitative easing”) this autumn for fear of completely undermining the economy.

The most likely scenario is the US and the EU will organise some kind of scheme that could pass for a “diplomatic solution to the issue”, allowing Europeans to wear the halo as peacekeepers.

Russian sanctions have freed the EU from its default feeling of invulnerability and exclusivity.

Understanding that the loss of good relations with Russia is an unaffordable luxury, will greatly help the EU to build a better relationship with Russia, in spite of pressure from Washington. Continue reading →

Grasping Gordon Brown’s government are not too worried about the situation we think. Consider it from their point of view: Anybody with savings in foreign currencies is moving their cash back into sterling right now at happy rates. (Assuming their bank has not gone bankrupt already.) People who fled Gordon’s high tax regime and those with second homes are selling up and coming back to England to ride out the storm – bringing their Euros with them. That’s a lot of extra cash flowing into Gordon inc. to be taxed and a few possible voters for him coming home. [He hopes] Continue reading →